The road to Utopia is the road to Hell. — Communism and socialism are the opiates of the intelligentsia. — The left, in its eternal and futile quest for "equality", is more than willing to abolish liberty and sunder fraternity.

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The Price of Government

UPDATED on 04/17/10, to include GDP estimates for 2009 and slight revisions to GDP estimates for earlier years. The bottom line remains the same: The price of government is exorbitant.

he federal government is mounting an economic intervention on a scale unseen since World War II. The excuse for this intervention is that without it the present recession will turn into a full-blown depression. Yet, with the Democrats’ and RINOs’ “stimulus” barely underway, the economy already shows signs of rebounding from an economic dip that bearsno comparisonwith the calamitous gulch that was the Great Depression.

Despite the horror stories about a financial meltdown, what we have experienced since late 2007 is not much more than the downside of a typical, post-World War II business cycle. (For more on that score, see this post — especially the third graph and related discussion.) Would it have been worse were all failing financial institutions allowed to fail? I doubt it. Hard, fast failure leaves in its wake opportunities for the organization of new ventures by investors who still have money (and there are plenty of them). But those same investors are being shouldered out and scared off by Obama’s schemes for nationalization, taxation, regulation, and redistribution.

What we are seeing is the continuation of a death-spiral that began in the early 1900s. Do-gooders, worry-warts, control freaks, and economic ignoramuses see something “bad” and — in their misguided efforts to control natural economic forces (which include business cycles) — make things worse. The most striking event in the death-spiral is the much-cited Great Depression, which was caused by government action, specifically the loose-tight policies of the Federal Reserve, Herbert Hoover’s efforts to engineer the economy, and — of course — FDR’s benighted New Deal. (For details, see this, and this.)

But, of course, the worse things get, the greater the urge to rely on government. Now, we have “stimulus,” which is nothing more than an excuse to greatly expand government’s intervention in the economy. Where will it lead us? To a larger, more intrusive government that absorbs an ever larger share of resources that could be put to productive use, and counteracts the causes of economic growth.

Can we measure the price of government intervention? I believe that we can do so, and quite easily. The tale can be told in three graphs, all derived from constant-dollar GDP estimates available here. The numbers plotted in each graph exclude GDP estimates for the years in which the U.S. was involved in or demobilizing from major wars, namely, 1861-65, 1918-19, and 1941-46. GDP values for those years — especially for the peak years of World War II — present a distorted picture of economic output. Without further ado, here are the three graphs:

The trend line in the first graph indicates annual growth of about 3.7 percent over the long run, with obviously large deviations around the trend. The second graph contrasts economic growth through 1907 with economic growth since: 4.2 percent vs. 3.6 percent. But lest you believe that the economy of the U.S. somehow began to “age” in the early 1900s, consider the story implicit in the third graph:

1790-1861 — annual growth of 4.1 percent — a booming young economy, probably at its freest

1970-2008 — annual growth of 3.1 percent — an economy sagging under the cumulative weight of “progressivism,” New Deal legislation, LBJ’s “Great Society” (with its legacy of the ever-expanding and oppressive welfare/transfer-payment schemes: Medicare, Medicaid, a more generous package of Social Security benefits), and an ever-growing mountain of regulatory restrictions.

Had the economy of the U.S. not been deflected from its post-Civil War course, GDP would now be about three times its present level. (Compare the trend lines for 1866-1907 and 1970-2008.) If that seems unbelievable to you, it shouldn’t: $100 compounded for 100 years at 4.3 percent amounts to $6,700; $100 compounded for 100 years at 3.1 percent amounts to $2,100. Nothing other than government intervention (or a catastrophe greater than any we have known) could have kept the economy from growing at more than 4 percent.

What’s next? Unless Obama’s megalomaniacal plans are aborted by a reversal of the Republican Party’s fortunes, the U.S. will enter a new phase of economic growth — something close to stagnation. We will look back on the period from 1970 to 2008 with longing, as we plod along at a growth rate similar to that of 1908-1940, that is, about 2.2 percent. Thus:

If GDP grows at 2.2 percent through 2109, it will be 58 percent lower than if we plod on at 3.1 percent.

If GDP grows at 2.2 percent for through 2109, it will be only 4 percent of what it would have been had it continued to grow at 4.3 percent after 1907.

The latter disparity may seem incredible, but scan the lists here and you will find even greater cross-national disparities in per capita GDP. Go here and you will find that real, per capita GDP in 1790 was only 4.6 percent of the value it had attained 218 years later. Our present level of output seems incredible to citizens of impoverished nations, and it would seem no less incredible to an American of 1790. In sum, vast disparities can and do exist, across nations and time. We have every reason to believe in the possibility of a sustained growth rate of 4.4 percent, as against one of 2.2 percent, because we have experienced both.

We should look on the periods 1908-1940 and 1970-2009 as aberrations, and take this lesson from those periods: Big government inflicts great harm on almost everyone (politicians and bureaucrats being the main exceptions), including its intended beneficiaries. Such is the price of government when it does more than “establish Justice, insure domestic Tranquility, [and] provide for the common defence” in order to “promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.”

Comments & Correspondence

Now that this blog is in hiatus, I have closed comments on all posts. If you wish to communicate privately, you may e-mail me at the Germanic nickname for Friedrich followed by the last name of the great Austrian economist and Nobel laureate whose first name is Friedrich followed by the 3rd and 4th digits of his birth year followed by the usual typographic symbol followed by the domain and extension for Google’s e-mail service — all run together.

On Liberty and Libertarianism

What is liberty? It is peaceful, willing coexistence and its concomitant: beneficially cooperative behavior.

John Stuart Mill opined that "the only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others." But who determines whether an act is harmful or harmless? Acts deemed harmless by an individual are not harmless if they subvert the societal bonds of trust and self-restraint upon which liberty itself depends.

Which is not to say that all social regimes are regimes of liberty. Liberty requires voice -- the freedom to dissent -- and exit -- the freedom to choose one's neighbors and associates. Voice and exit depend, in turn, on the rule of law under a minimal state.

Liberty, because it is a social phenomenon and not an innate condition of humanity, must be won and preserved by an unflinching defense of a polity that fosters liberty through its norms, and the swift and certain administration of justice within that polity. The governments in and of the United States have long since ceased to foster liberty, but most Americans are captives in their own land and have no choice but to strive for the restoration of liberty, or something closer to it.

Who can restore liberty? Certainly not the self-proclaimed libertarians who are fixated on Mill's empty harm principle and align with the left on social norms. Traditional (i.e., Burkean) conservatism fosters the preservation and adherence of beneficial norms (e.g., the last six of the Ten Commandments). Thus, by necessity, the only true libertarianism is found in traditional conservatism. I am a traditional conservative, which makes me a libertarian -- a true one.

Notes about Usage

“State” (with a capital “S”) refers to one of the United States, and “States” refers to two or more of them. “State” and “States,” thus used, are proper nouns because they refer to a unique entity or entities: one or more of the United States, the union of which, under the terms and conditions stated in the Constitution, is the raison d’être for the nation. I reserve the uncapitalized word “state” for a government, or hierarchy of them, which exerts a monopoly of force within its boundaries.

Marriage, in the Western tradition, predates the state and legitimates the union of one man and one woman. As such, it is an institution that is vital to civil society and therefore to the enjoyment of liberty. The recognition of a more-or-less permanent homosexual pairing as a kind of marriage is both ill-advised and illegitimate. Such an arrangement is therefore a “marriage” (in quotation marks) or, more accurately, a homosexual cohabitation contract (HCC).

The words “liberal”, “progressive”, and their variants are usually enclosed in quotation marks (sneer quotes) because they refer to persons and movements whose statist policies are, in fact, destructive of liberty and progress. I sometimes italicize the words, just to reduce visual clutter.

I have reverted to the British style of punctuating in-line quotations, which I followed 40 years ago when I published a weekly newspaper. The British style is to enclose within quotation marks only (a) the punctuation that appears in quoted text or (b) the title of a work (e.g., a blog post) that is usually placed within quotation marks.

I have reverted because of the confusion and unsightliness caused by the American style. It calls for the placement of periods and commas within quotation marks, even if the periods and commas don’t occur in the quoted material or title. Also, if there is a question mark at the end of quoted material, it replaces the comma or period that might otherwise be placed there.

If I had continued to follow American style, I would have ended a sentence in a recent post with this:

What a hodge-podge. There’s no comma between the first two entries, and the sentence ends with an inappropriate question mark. With two titles ending in question marks, there was no way for me to avoid a series in which a comma is lacking. I could have avoided the sentence-ending question mark by recasting the list, but the items are listed chronologically, which is how they should be read.

This not only eliminates the hodge-podge, but is also more logical and accurate. All items are separated by commas, commas aren’t displaced by question marks, and the declarative sentence ends with a period instead of a question mark.